Real Estate Professional Tax Designation By Getting My License?

[Ashneel Reddy]

Hi,

I am in a situation where I am unable to claim losses from real estate due to active income being over the limit. If my wife gets her real estate license does that automatically give us the real estate professional designation for tax purposes?

[Ashish Acharya]

Originally posted by @Ashneel Reddy:

Hi,

I am in a situation where I am unable to claim losses from real estate due to active income being over the limit. If my wife gets her real estate license does that automatically give us the real estate professional designation for tax purposes?

The status is a tax concept and is not related to the license. There are extensive hours requirements. 

For RE pro to deduct RENTAL passive loss, they have to meet two requirement:

1. - First be RE pro. Meet two personal service test. ( For a joint return, either spouse must separately satisfy the two tests - meaning husband cannot meet one service test and spouse can meet other or vice versa). But MP of one spouse is counted for other spouse.

1. - Materially participates in real property trade and business (taxpayer can counts his/her spouse participation to determine the material participation) - Seven test rule

For individuals with full-time jobs outside real estate, the 50% rule is just as likely to cause problems as the 750-hour rule. However, in cases where a spouse works full-time outside real estate and the other spouse does not, it may be possible to structure the other spouse's time to pass both the 50% test and the 750-hour test. 

You should also consider aggregating rental activities when the spouses participate in more than one such activity. However, the aggregation election makes sense only when it converts passive losses that would otherwise be suspended under the PAL rules into currently deductible nonpassive losses. Even then, the you must carefully consider any potential negative effects of aggregating the activities.